No more nibling anymore

The Economic Times     21st May 2020     Save    
QEP Pocket Notes

Context – Government’s stimulus package is not enough to bring out the economy out of crisis. More reforms are needed.

India’s present situation

  • $5 Trillion Economy Target: Currently at $2.8 trillion. With 4% Hindu growth rate, target can be reached by 2030.
  • India and Globalisation: Global trade (60%) as the share of World GDP peaked before COVID crisis.
  • India’s share in global trade is low. 
  • Aggressive Export led strategy may not be affective as world is going inward. So inward turn by India will ensure low growth only.

Comparison of India’s fiscal package with other countries.

  • India: Overall 9.6% of GDP (comprising of liquidity easing measures, partial guarantee) of which direct fiscal package is 1-1.5% of GDP only.
  • Other countries: Japan (21%), USA (13%), Sweden (12%)
  • Reason for Low direct fiscal stimulus: Printing more money creates the fear of rating downgrade. Fiscal Demand booster may be too small for recovery.

Stimulus Package

  • Atmanirbhar Bharat: It is not about turning inward but to make local brand global, Big push on global competitiveness as India strive to attract more FDI.
  • MSME Sector: Rs 3 trillion collateral free loan will benefit 45 lakhs units. Subordinate debt provision for stressed MSME and change in definition of MSME (investment up to 1 crore and sales 5 crore).
  • Partial credit guarantee (20%): for NBFCs and mutual fund and onetime emergency liquidity injection.
  • MGNREGA allocation: it has been increased by Rs 40000 crore (0.2% of GDP).
  • Borrowing: State borrowing limit has been raised from 3% to 5% of GSDP and 1% of GDP more based on performance.
  • Direct benefits: Free rations for 80 million people for two month and launch of one nation-one ration card and subsidised housing are announced.

Suggestions

  • Health: India should increase public health spending from 1.3% to at least 3% of GDP.
  • Direct cash transfer: can be adopted rather than ration cards as it has huge problem of implementation leakages and corruption.
  • Second generation Labour Reforms: Apart from giving flexibility in hiring and firing of workers, Employer should provide safe working conditions, adequate compensation, and unemployment benefits.
  • Second generation Land Reforms: There is need to fix land titling and acquisition issue.
  • Restructuring India’s public finance: More spending on Health, Education, and infrastructure and less on wasteful subsidies.
  • Corruption: Reduction of ever-present virus of corruption and over-regulation must be priority. 
QEP Pocket Notes